The Securities and Exchange Board of India or SEBI recently put forth a paper of consultation regarding concerns that the board has about álgo trading platforms. The latest trend in trading (although in an unregulated manner) is catching on with traders who involve themselves in trading platforms offering automatic strategies for trading. If you are an investor, you should rightly be informed, and this is the main reason of concern by SEBI, about the false promises trading platforms make.
First you should know that ‘algo’ is the short term for an algorithm. By using a set of algos, as specific trading methods to execute trades, certain online trading platforms sell these to investors assuring them of ‘good returns’ with these ‘assured and guaranteed’ trading tactics. Of course, these may well be false claims, and a means by which these platforms make money off the naive trader who is searching for any way to maximize profit through trading. SEBI plans to bring some regulations in order to make sure that investors are not duped via such platforms.
It is one thing to open a demat account linked with a trading account online, but quite another to have a brokerage use algos to trade on behalf of a client. Some algo trading platforms go so far as to claim that they have executed trades that have generated massive returns for clients. This is how they sell investors on the idea of algo trading. The main thing that you should keep in mind, as an investor, is that there is no easy route to growing your wealth. Moreover, if anything you read looks too good to be true, it is probably too good to be true. You may part with your hard-earned cash, only to never see it again.
Algorithms, explained in simple terms, are software programmes that have the ability to gather data for a strategy in trading. The way the trading works is that, when required, automatically the programme gets executed to make a trade. This happens when a particular strategy gives out a signal to buy or sell. Instead of investors having to go through charts to see the profit/loss history of a certain stock, this trading tactic is programmed to do the work and trade with the stock accordingly. Doing this manually is tedious for the most diligent trader. Contrastingly, a strategy that is coded into a programme comes into play automatically given a particular trading situation. Online trading platforms that offer up algo trading seem tempting, but cannot guarantee returns.
With information on your side, you, the investor can be more wary of platforms that vow to give you profits through algo trading. These platforms are still small regarding users and the revenue generated, but they may grow bigger. Furthermore, such platforms have come under official scrutiny for using names of reputed brokerages without consent. If you wish to trade, it is best to learn about trading through coaching videos and other material on reliable platforms like Motilal Oswal.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account